MICRO: (4.1) (Unit 1) Economic methodology and the economic problem Flashcards
What are positive statements?
These are objective statements that can be tested against facts to be declared either true or false, doesn’t have to be true.
What are normative statements?
These are subjective opinions or value judgements that cannot be tested against facts.
What is economics?
Economics is the study of choice and decision making in a world with limited resources.
What is production?
Production is a process, or set of processes, that converts inputs into outputs.
What does CELL stand for?
Capital, Enterprise, Land and Labour
What is fixed capital vs working capital?
Fixed capital includes machinery, equipment and buildings while working capital means the stock of finished goods and semi-finished products that are in the process of being made.
What does capital mean (CELL)?
Man-made physical equipment.
What does enterprise mean (CELL)?
The individuals who take the risks and combine the other 3 factors of production to produce a good/service to make a profit.
What does land mean (CELL)?
Renewable energy (stock of natural resources).
What does land mean (CELL)?
The human input in production.
What is a need?
A need is something that humans require to survive, such as food, shelter and warmth.
What is a want?
A want is something not essential for survival, but which people feel improves their standard of living/ economic welfare (e.g. a new car).
What is economic welfare?
Economic welfare refers to the standard of living, or general wellbeing, of individuals in society (satisfying society’s needs and wants).
What is scarcity?
Scarcity is when economic resources are limited relative to society’s needs.
What is market economy?
- firms produce goods and services demanded most by consumers.
- firms produce in a low-cost, efficient way in order to maximise profit.
What is a planned economy?
- firms produce goods and services directed by the government.
- firms produce goods and services by whatever equipment is available.
- everyone in society gets to consume all that they need.
What does scarcity mean for the economy?
Economy must make choices.
What is rationing?
Rationing is a way of allocating scarce resources and services when demand exceeds the available supply.
What does ‘opportunity cost’ mean?
Opportunity cost is the next best alternative, an individual must make a choice between 2 or more options.
What does PPF stand for?
Production Possibility Frontier
What is a PPF curve?
A PPF curve shows the maximum possible output combinations of two goods and services an economy can achieve when all of their resources are fully and efficiently employed.
What are trade-offs?
Trade-offs are when the PPF curve reflects the idea that the economy must make trade-offs when allocating its resources.
Why does the slope of the PPF curve represent?
It represents the opportunity cost of switching from producing one good to producing another good.
What are some factors that lead to an outward shift of the PPF curve?
- increase in natural resources
- technological advances (allows economy to produce more output with same resources)
- investment in capital
What does dynamic efficiency mean?
This refers to an economy’s ability to grow and expand its possibilities overtime, involves shifting PPF curve outwards through investments, innovations and technological advancements.
What does an outward shift of the PPF mean?
This indicates that the economy has achieved dynamic efficiency, allowing it to produce more goods and services that before with the same resources.
